Before a packed crowd of the Who’s Who in Washington, circles, Sen. Frank Murkowski (R-AK) and other SenateRepublicans last week touted their omnibus energy legislation asboth “sound” and “well balanced.” The mix of tax credits,incentives, royalty relief and other measures offered in the bill,they vowed, will reduce the nation’s dependence on foreign oil toless than 50% by 2010 by increasing domestic production ofconventional energy fuels and improving energy efficiency andconservation.

“The time has come for a sound energy plan…that uses the fuelsof today to yield the technology of tomorrow,” said Murkowski, thechief architect of the bill. “We really have an energy crisis inthis country…With the economy running on perhaps the largest joyride in history, policymakers just simply overlooked [the need] tocheck the fuel gauge in the process, and truly the engine issputtering.”

The long-anticipated bill, which is titled the National EnergySecurity Act of 2001, offers something for everybody, but it has aspecific bent toward traditional energy sources. It was roundlysupported by trade associations representing major producers,independent producers, interstate gas pipelines and localdistribution companies, as well as by groups representing majorconsumers, such as high-tech users.

But it also drew a cadre of critics — both on and off CapitolHill — who hotly contest a provision in the bill that seeks toopen up the coastal plain region of the Arctic National WildlifeRefuge (ANWR) to oil and gas drilling. In fact, two bills wereintroduced in the Senate and House last week to fight back anyefforts to allow an E&P invasion of the Arctic coastal region.

“President Bush through Sen. Murkowski is coming to Congress andasking us for authorization to permit drilling in the Alaskarefuge. The answer we’re giving them [with these bills] is ‘no, itshould not be drilled, It should be set aside as wilderness,” saida press aide for Rep. Edward J. Markey (D-MA), who co-sponsored theopposition House legislation with Rep. Nancy L. Johnson (R-CT).Sen. Joseph Lieberman (D-CT) introduced the companion bill in theSenate. The measures seek to permanently protect the coastal plainby adding it to the National Wilderness Preservation System.

Democrats in the Senate widely oppose any legislation that wouldpermit drilling in the Alaska refuge. Several Republican senators,mostly those representing New England states, also object to thestart-up of exploration and drilling activities in ANWR.

But for Murkowski, ANWR is a ‘must’ for any energy legislation.”If you’re going to have meaningful legislation that addressessupply, you better go find where the oil [and gas] is likely tooccur, and that [ANWR] is where it is,” he said during a pressbriefing on Capitol Hill last Monday. “I think that when we[Congress] get into the discussion and debate we’ll recognize thatthrough technology we can have a manageable footprint [in ANWR] andprotect the environment and the ecology.”

The Senate’s omnibus energy package bill specifically calls forthe secretary of the Department of Interior (DOI) to “establish andimplement a competitive, and environmentally sound, oil and gasleasing program for the exploration, development and production” ofresources in the 1.5 million-acre coastal plain region of ANWR. Itseeks strict environmental protections, and would earmark a portionof the bid bonuses from leases for funding of research intorenewable energy sources.

President Bush, a supporter of drilling in ANWR, set the wheelsin motion last week to possibly begin oil and gas leasing in theArctic coastal region by 2004. He authorized DOI to begin a studyof the environmental impact of drilling in the Arctic region, andto have it completed by 2004. But the final decision on whether toopen up the coastal region will rest with Congress, not the Bushadministration.

The Senate legislation was touted as a bi-partisan measure, asMurkowski managed to enlist the last-minute support of a Democrat,Sen. John Breaux of Louisiana. With Breaux on board as aco-sponsor, Murkowski is hoping to allay Democrat concerns aboutthe controversial ANWR provision. But the bill still is largely aRepublican effort, with its co-sponsors including Senate MajorityLeader Trent Lott (R-MS), Sen. Larry Craig (R-ID), Sen. PeteDomenici (R-NM), Sen. Craig Thomas (R-WY) and Sen. Chuck Hagel(R-NE).

“There’s other Democrats supporting it [the legislation]” otherthan Breaux, Murkowski, chairman of the Senate Energy and NaturalResources Committee, told reporters. “We hope through a process ofeducation we can address their [Democrats’] concerns” about ANWR.Breaux was absent from last Mondays’s briefing, but “he’s 100% onboard,” said an aide to the senator.

In addition to ANWR, the omnibus measure contains a number ofprovisions to promote production of oil and gas both onshore andoffshore in the Lower 48 states. It seeks to amend the Deep WaterRoyalty Relief (DWWR) program, which expired last year; furtherencourage oil and gas drilling in remote areas of the OuterContinental Shelf (OCS); give producers faster recovery of capitalcosts for costly deep-water drilling activities; provide in-kindpayment of royalties owed on production from federal oil and gasleases; allow producers to forego royalty payments during periodsof low energy prices; turn over the regulation of oil and gasleases on federal lands to the states, and offer a number of taxcredits and incentives to boost production from small oil and gaswells.

As for specific tax relief, the measure calls for a $3/barreltax credit on marginal oil production and a credit of 50 cents perMcf for natural gas produced from marginal wells. The credits wouldapply only when prices dip below $18/barrel for oil or $2/Mcf forgas, and can be carried back 10 years. The bill also proposes torepeal the 65% net income limit for percentage depletion of oil andgas wells operated by independent producers, repeal the current 50%net income limit on percentage depletion of oil and gas wells,expensing of geological and geophysical expenditures, and a 10%investment tax credit for U.S.-built oil and gas drilling vesselsand structures in excess of 10,000 gross tons.

“I think if you go through this bill you’ll find that theincentives that are offered are primarily designed for the smallindependent, the stripper wells to try and encourage more domesticproduction,” said Murkowski. “This isn’t a tax bill in the sense offavoring Big Oil…We didn’t feel [that] was necessary. Big Oil isdoing quite well,” he told reporters.

Murkowski said he has requested a scoring of the tax provisionsof the legislation, but it hasn’t been completed yet. “It’s on theway.”

While Murkowski and other Senate leaders last week decried theamount of public lands that are off-limits to drilling activity inthe Lower 48 states, there wasn’t a single provision in the billthat called for improved access to onshore and offshore areas forproducers. The senators estimated that 213 Tcf or more of naturalgas supply currently is subject to land restrictions in theOverthrust Belt, eastern Gulf of Mexico, off the East Coast and inwestern states.

The measure also focuses on several proposals for improving thecertification process for new natural gas pipelines. Specifically,it requires FERC to report to Congress within six months on animproved process for certifying pipelines (with recommendations forlegislation); the Department of Energy (DOE) and FERC to establishan interagency task force to expedite environmental review andpermitting of gas pipelines; and all federal agencies that issuerights-of-way for transmission lines or pipelines to report to FERCand DOE within one year on the ability of existing corridors tosupport new or additional capacity.

It further requires the Department of Transportation to developa research and development (R&D) program to ensure theintegrity of natural gas and hazardous liquid pipelines, anddirects DOE to conduct a comprehensive five-year program of R&Dto improve the reliability, efficiency, safety and integrity of gaspipelines, distribution lines and for distributed energy resources.

On the electricity side, the Senate bill does not seek to giveFERC authority over the siting of transmission facilities, whichsome thought would be included. It does have a number of provisionsdealing with power generation. It calls for DOE to report annuallyto Congress on the availability and capacity of domestic generationto maintain the power grid; DOE to report to Congress within ninemonths on innovative financing techniques to encourage new powergeneration technologies; the DOE secretary to carry out a powerplant improvement initiative that will demonstrate commercialapplications of coal-based technologies to new and existinggeneration plants; increased federal funding for the continued useof nuclear energy to fuel generation; and the creation of anindustry-run, FERC-overseen organization to set enforceablereliability rules for the interstate electric transmission grid.The Senate measure also provides for a number of tax credits forgenerators that retrofit existing coal-fired plants or build newfacilities using advanced clean-coal technology.

Murkowski said he didn’t expect the Bush administration torecommend major changes in the bill. “I suspect it’s socomprehensive there isn’t much that’s not in it that they wouldhave put in it.” Lott believes the White House will provide someinput on the legislation in the “next month or six weeks.” It”perhaps will want to enforce certain aspects of this bill or willhave other ideas,” he said.

A high-level staff official with the White House national energypolicy task force said last week it plans to forward specificpolicy recommendations for energy legislation — rather thanpropose its own energy bill — to Capitol Hill sometime in earlyApril. In addition, the task force will recommend executive actionsand regulation agency actions. The staff official indicated theCabinet-level task force probably would have a different take onsome of the energy issues than Murkowski, but he declined toidentify which ones (see related story, this issue).

The omnibus legislation will be referred to two committees forhearings — the Senate Energy and Natural Resources Committee andthe Senate Finance Committee. When asked when he thought a billwould reach the full Senate, Murkowski said, “we got a long way togo.” But Lott said he hoped to get quick action on it. “I’m lookingforward to working with leaders on both sides of the aisle to getthis legislation out of comittee on the floor of the Senate, andhopefully passed sometime this summer.”

Susan Parker

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